Far from setting the record straight the exit interview of the ex-Governor of the Bank of Mauritius (BoM) has kicked off an avalanche of further queries and attempts at deciphering the covert and the meticulously calculated revelations/allegations of the narrative
For example, our ex-Governor seems to have been well aware, as far as some ten years back, about the unsound activities of BAI, especially the riskiness of the staggering level of investment in related companies. What is most shocking is that despite these unsound investments, in December 2006, this financial group was granted "approval in principle" to obtain a license by the Bank of Mauritius, Who was the Governor of the Central Bank then ? Yes, the Bank of Mauritius (BoM) is not a courtroom but a central bank that is mandated, inter alia, to maintain monetary and financial stability. Then, you do not go around awarding licenses to banks - from First City Bank to Bramer Bank -destined to fail.
On the issue of the closure of
the BAI group and revocation
of Bramer Bank’s license following persistent liquidity and regulatory capital
shortages, our ex-Governor claims that
he saved the country from a
consequential financial crisis that would have spilt
over into an economic
crisis. The BoM , he avers, was unsupported by the FSC which preferred to duck down while our theatrical
reform guy was projecting some recomforting net worth figures for government after blowing up the Bramer/BAI bubble. But at what cost, exclusive of the selected few who benefited from the sharing of insider information ?
The chickens are now coming home to roost. The counter-claim is that BoM
avoided irking the powers of the day by siding
with the very ones having the shared conviction
that there was an urgency
to settle scores. It is
argued equally by “street guys as well as crisis
resolution experts ” that the audacity of the decisions did not necessarily mean
a better management of affairs. Instead of bursting
the BAI/Bramer Bank bubble, a clear rescue plan could
have been devised and implemented by the Ministry of Finance, in coordination
with the Financial Services Commission, the Registrar of Companies, the
Financial Reporting Council and the Bank of Mauritius. A key objective would have been to establish
proper supervisory oversight and enforce corrective action for effective and
prudent risk management. Under firm pressure from the supervisory institutions
and Government, in December 2014 itself, (not four months later), BAI
Co Ltd could have been led into a salvage operation involving new strategic
investments and sound professional management.
The BAI Group’s well-performing Kenyan businesses which held substantial
assets could have provided a
financial underpinning to strengthen BAI Co Ltd. A major source of financial hemorrhage within
the BAI Group could have been urgently addressed, namely the Apollo Bramwell
Hospital while some degree of public financial support
could have been provided to bring health and soundness to BAI Co Ltd.
On the question of the excess
liquidity, our ex-Governor shrewdly glosses over it by asserting that he
approves the IMF stand and deflects the discussion to the preference exchange
rate agreement for the export sector which is not considered “world best
practice”. How can you be in agreement with the IMF when your monetary policy
is accommodative whereas the IMF is recommending a more restrictive one? Even our
“fake economists” could not make it out given that the ex-Governor agrees that
there is a disconnect between the Key Repo Rate (KRR) and the bank rates. In a
situation where the KRR is well above interbank rates, the deposit and lending
rates at historically low levels, the real interbank rates are negative, base
money growth doubles, and excess bank liquidity is high, the KRR is reduced by
50 bps!!! The IMF , however, has been recommending that all excess liquidity be
mopped up so that interbank rates can rise in line with the KRR.
Thus, can we blame
some “fake economists” for having doubts on the independence of the
Central Bank, with the risk of it becoming nothing more than a cipher ? When it
is “BAI/Bramer” the costs to the
economy were inevitable but when it is about “excess liquidity” the BoM feels constrained by the cost of sterilization!!! It is not too late for our ex-Governor to
wake up and realize that he cannot have it both ways- have his cake and eat it
at the same time.
